Annex 13. Disclaimer: This version of the Guidelines is in draft form and is subject to change.

Transcription

1 Annex 13 NEW GUIDELINES ON MINIMUM STANDARDS FOR REGISTERED INSURANCE BROKERS EXEMPT FROM HOLDING A FINANCIAL ADVISER S LICENCE UNDER SECTION 23(1)(c) OF THE FINANCIAL ADVISERS ACT Disclaimer: This version of the Guidelines is in draft form and is subject to change.

2 1 Guideline No Issue Date : FAA-Gxx : xxx GUIDELINES ON MINIMUM STANDARDS FOR REGISTERED INSURANCE BROKERS EXEMPT FROM HOLDING A FINANCIAL ADVISER S LICENCE UNDER SECTION 23(1)(c) OF THE FINANCIAL ADVISERS ACT (CAP. 110) Purpose of these Guidelines 1 These Guidelines are issued pursuant to section 64 of the Financial Advisers Act (Cap. 110) [ the Act ]. Subject to paragraph 3, these Guidelines are intended to provide guidance on the minimum financial requirements and conduct of business standards that every broker exempt from holding a financial adviser s licence under section 23(1)(c) of the Act [hereafter known as a broker ] should meet at the time the broker commences any service and at all times during the period in which the broker carries on a business of providing any service. 2 These Guidelines should be read in conjunction with the provisions of the Act, subsidiary legislation made under the Act, as well as written directions, notices, codes and other guidelines that the Monetary Authority of Singapore [ the Authority ] may issue from time to time. Application of these Guidelines 3 These Guidelines apply to all brokers exempt from holding a financial adviser s licence under section 23(1)(c) of the Act, other than a broker who satisfies all the conditions of regulation 17A(1)(a) to (c) of the Financial Advisers Regulations [ FAR ]. Definitions 4 For the purposes of these Guidelines holding company has the same meaning as in section 5 of the Companies Act (Cap 50); net asset value has the same meaning as in regulation 2(1) of the Insurance (Intermediaries) Regulations [ IIR ].

3 (Cap. 110) 2 5 The expressions used in these Guidelines shall, except where expressly defined in these Guidelines or where the context otherwise requires, have the same respective meanings as in the Act and the FAR. Minimum standards that a broker should meet in respect of its provision of any service 6 The Authority expects a broker to meet the following minimum standards at the time it commences carrying on a business of providing any service and at all times during the period it carries on a business of providing any service: 6.1 Professional Indemnity Insurance Section 10 of the Act read with section 23(4), Regulation 17G of the FAR and the Notice on Requirements for Registered Insurance Brokers Exempt from Holding a Financial Adviser s Licence under Section 23(1)(c) of the Financial Advisers Act (Cap. 110) (Notice No. FAA-Nxx) (the Notice ) set out the requirements that a broker which intends to carry on or carries on a business of providing any or all types of services to a client who is not an accredited investor, an expert investor or an institutional investor, must comply with in relation to a professional indemnity policy ( PII ) For the purposes of section 9(1)(c) of the Act, the Authority may at its discretion approve the following alternative PIIs in lieu of a PII which satisfies the requirements set out in regulation 17G of the FAR and the Notice, subject to the broker having adequately demonstrated that the alternative PII does not, directly or indirectly, undermine the interest of investors and fulfilled of the following conditions specified for each type of alternative PII 1 : Types of Alternative PII (A) Group PII in respect of only the Conditions to be Satisfied (i) Minimum coverage has to be at least 5 times the required quantum under a standalone non-hybrid PII. (ii) If the deductible of the Group PII is greater than 10% of 1 The Authority may, when the broker is no longer able to demonstrate the alternative PII does not undermine the interest of investors or where the conditions specified for that type of alternative PII is no longer satisfied, withdraw its approval for the alternative PII and the broker will have to comply with requirements set out in regulation 17G of the FAR and the Notice.

4 (Cap. 110) 3 of providing any service (B) Group PII in respect of the as an broker and of providing services (C) Hybrid PII 2 in respect of the as an broker and of providing services, and if applicable, such other business carried out by the broker (D)Group Hybrid PII in respect of only the the base capital of broker, an undertaking from the broker s (i) Minimum coverage has to be at least 5 times the required quantum under a standalone non-hybrid PII. (ii) If the deductible of the Group PII is greater than (a) where the broker is in its first financial year of operation, the lower of 10% of the broker s base capital or 20% the broker s paid-up capital; and (b) in any other case, the lower of 10% of the broker s base capital or 20% of the net asset value of broker as at the end of its immediately preceding financial year, an undertaking from the broker s (i) Sub-limits have to be set for the non-pii sections of the hybrid PII. (ii) Total coverage under the hybrid PII less the sub-limits for the non-pii sections has to be at least equivalent to the required quantum under a standalone non-hybrid PII. (i) Sub-limits have to be set for the non-pii sections of the Group hybrid PII. (ii) Total coverage of the Group hybrid PII less the sub-limits for the non-pii sections has to be at least 5 times the required quantum under a standalone non-hybrid PII. 2 A hybrid PII is a PII policy which offers coverage on PII as well as other risks, such as crime and directors and officers liability.

5 (Cap. 110) 4 of providing any service (E)Group Hybrid PII in respect of the as an broker and of providing services, and if applicable, such other business carried out by the broker (iii) If the deductible of the Group hybrid PII is greater than 10% of the base capital of broker, an undertaking from the broker s (i) Sub-limits have to be set for the non-pii sections of the Group hybrid PII. (ii) Total coverage of the Group hybrid PII less the sub-limits for the non-pii sections has to be at least 5 times the required quantum under a standalone non-hybrid PII. (iii) If the deductible of the Group hybrid PII is greater than (a) where the broker is in its first financial year of operation, the lower of 10% of the broker s base capital or 20% the broker s paid-up capital; and (b) in any other case, the lower of 10% of the broker s base capital or 20% of the net asset value of broker as at the end of its immediately preceding financial year, an undertaking from the broker s A broker should submit a copy of its PII policy to the Authority at the time of lodgment of Form 26 with the Authority, and where the PII policy is renewed or replaced, within a month from the date on which the PII policy is renewed or replaced. 6.2 Systems and Processes, including Compliance Arrangements A broker should have adequate internal compliance systems and processes commensurate with the size and complexity of its business of providing services to ensure compliance with the law, good practices and professional standards. This would include access to research reports, financial planning tools and services, and investment capability A broker should have in place compliance arrangements that are independent of its advisory and sales functions, staffed with suitably qualified individuals, and commensurate with the nature, scale and complexity of its business of providing services.

6 (Cap. 110) A broker which intends to have or has more than 20 appointed representatives or whose annual gross revenue earned from the provision of any or all types of services is likely to or exceeds S$5 million, should have a compliance function which is staffed with suitably qualified individuals who are independent from the broker s advisory and sales functions and dedicated to their compliance role. 6.3 Fit and Proper A broker as well as its officers, employees, representatives and substantial shareholders must satisfy the fit and proper criteria set out in the Guidelines on Fit and Proper Criteria issued by the Authority (Guideline No. FSG- G01). Miscellaneous 7 Any broker who is (a) (b) carrying on a business of providing any or all types of financial advisory services; and an exempt financial adviser ( existing person ), before [date which these Guidelines take effect] ( appointed date ), need not observe paragraph 6.1 for a period of 12 months from the date which the Financial Advisers (Amendment No. 1) Regulations 2015 come into operation ( notified period ). 8 Notwithstanding that an existing person should observe paragraph 6.1 after the notified period (a) an existing person need not observe paragraphs 6.1.2(A)(ii), 6.1.2(B)(ii), 6.1.2(D)(iii) and 6.1.2(E)(iii), as the case may be. for a period of 12 months from the end of the notified period and ending on the expiry of 24 months from the date which the Financial Advisers (Amendment No. 1) Regulations 2015 come into operation ( relevant period ); and (b) if during the relevant period,

7 (Cap. 110) 6 (i) any Group PII or Group hybrid PII, as the case may be, in respect of only the existing person s business of providing any financial advisory service, if the deductible of the Group PII or Group hybrid PII, as the case may be, is greater than 10% of the existing person s paid-up capital; (ii) any Group PII or Group hybrid PII, as the case may be, in respect of the existing person s business as an broker and of providing services, and if applicable, such other business carried out by the existing person, if the deductible of the Group PII or Group hybrid PII, as the case may be, is (A) (B) where the existing person is in its first financial year of operation, greater than 10% of the existing person s paidup capital; or in any other case, greater than the lower of 10% of the existing person s paid-up capital or 20% of the net asset value of the existing person as at the end of its immediately preceding financial year, the existing person must provide an undertaking from the existing person s claim. 9 An existing person need not observe paragraphs and for a period of 6 months from the appointed date.